Authorized Causes of Termination

The Labor Code of the Philippines has established the authorized causes for termination under Article 298 (previously article 283) and Article 299 (previously article 284). The authorized causes permit the employer to dismiss the employee on grounds that do not arise from the employee’s fault or negligence.

Employment concerns the livelihood of the employee, therefore, termination of employment must be done in a most ethical and professional manner. Furthermore, it must be accordance with established rules, principles and in a manner as required by law.

Therefore this article will help you to understand the following:

  • Understanding Authorized Causes
  • Authorized Causes for Termination
  • Requirements for Authorized Termination
  • Difference between Just Cause and Authorized Cause
  • Consequences of an Authorized Termination

What are authorized causes of termination?

Authorized causes are valid causes that usually derives from business decisions to ensure the sustainability of the company or to improve the economic conditions of the company which comes in precedence over the continued employment of the employees. In terminating based on an authorized cause, the employer shall bear the burden of proof to justify the dismissal was for a lawful cause and in a manner required by law. The termination shall not be done in bad faith or to deprive the employees of any privilege or benefit.

What are the authorized causes for termination?

The authorized causes can be found in Article 298 (previously article 283) and Article 299 (previously article 284) of the Labor Code of the Philippines. They are:

  • Installation of labor-saving devices;
  • Redundancy;
  • Retrenchment to prevent losses;
  • Closure or cessation of operation of the establishment or undertaking unless the closing is for the purpose of circumventing the provisions of the Labor Code; or
  • Disease / illness.

What are the requirements in terminating an employee due to authorized causes?

The employer must establish and comply with the following as part of the requirements in terminating an employee for authorized causes:

  • Good faith in the termination of employee, i.e., the implementation of the company program resulting in termination of employees must be for a valid cause and not merely a tool to circumvent the law on employee’s security of tenure;
  • The employer must adopt fair and reasonable criteria in the selection of employee to be dismissed; and,
  • The employee must be paid separation pay not less than the amount fixed by law.

In the selection of the employee to be dismissed, the employer must adopt of fair and reasonable criteria which must be applied in good faith such as the less preferred status of employee, efficiency rating and seniority unless the employee voluntarily asks to be separated.

What is the difference between just cause and authorized cause?

In contrast to just causes, termination for an authorized cause is due to the business needs and in general does not arise from an employee’s fault or negligence and thus, an employee terminated on grounds of authorized causes shall be entitled to separation pay.

On the other hand, a termination due to a just cause is directly attributable to the fault or negligence of the employee. As such, when an employee is terminated due to a just cause, the employee is not entitled to separation pay unless provided for under the collective bargaining agreement, employment contract or the company policy.

What are the consequences of a termination due to an authorized cause?

Valid Authorized Cause Due Process Followed Consequences
Yes Yes Valid dismissal, no other consequences
Yes No Valid dismissal but may be liable for payment of indemnity or nominal damages
No Regardless Invalid dismissal. The employee may be entitled to one or more of the following:

  • Reinstatement without loss of seniority rights;
  • In lieu of reinstatement, an employee may be given separation pay of one month pay for every year of service;
  • Full backwages, inclusive of allowances and other benefits or their monetary equivalent from the time compensation was withheld up to the time of reinstatement;
  • Damages if the dismissal was done in bad faith.

For more information about labor regulations, please refer to Presidential Decree No. 442, s. 1974.